They have released their latest Property Focus report, which looks at the state of the housing market.
It uses ten gauges to predict the likely direction of house prices.
Three are potentially negative at present: Affordability, indebtedness and house prices compared to rents.
But migration, the supply-demand balance, consents and house sales, and housing supply are all pointing to prices having further room to increase. It said there was still strong population demand and still not enough builders to supply the houses.
On balance, the report said there was likely to be more price appreciation, at a slower rate. “[There is] still tension between a housing shortage and valuations.”
But the economists said the income side of the ledger in affordability calculations was crucial, but currently getting insufficient attention. “People will buy what they can afford.”
The report said there were positive signs for incomes, which would support house prices: Growth prospects for the economy were sound, income growth had been respectable and the number of people on the benefit had fallen.
But there were still areas of vulnerability and some jobs could be under threat due to technological advancement.
“The New Zealand economy is on a roll," the report said.
"Associated solid income gains will provide some spine to the household sector over the coming years. While welcome, there are risks, and we shouldn’t sugar-coat the challenges the likes of the fourth industrial revolution will entail. Moreover, it’ll be cold comfort if double-digit house price gains cannot be lowered into low single-digit territory. It’s also fair to say that global risks are increasing, and policymakers have far less ammunition than they did in the last cycle to fight a downturn. A little wariness in boom times can be a wise approach in the long run.”
House prices are about six times income nationally, slightly above the previous highs recorded before the global financial crisis. But in Auckland the ratio is nine times.
The average mortgage payment to income nationally is around 33%. Auckland is at 50%. “That is near the highs reached in 2007 despite mortgage rates being at historic lows currently. It highlights how sensitive some Auckland borrowers would be to even a small lift in interest rates.”
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